Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the medium wage.

Say for example that the US govt. is also putting an extra tax of 10% on the wealth of the rich - the individuals and families that own more than 300.000 $US

Gather all those money in two separate accounts so everyone can see how much money are collected.

And then use all the collected money to pay a part of the internal debt of the country (the internal debt is a part of the public debt, which is actually the debt of the country).

This looks like something that might actually work but I'm asking because there are a lot of complicated and sophisticated intricacies in the field of economics, or at least that's how the experts in economy make it look like.

So I'm asking if it's possible to pay a part of the debt of the country by increasing the taxes.

The people that sit on the top-half of the food chain might be affected by an extra 10% tax but for sure they will be affected much less than the poor people who would have to pay an extra 10% tax because without that 10%, the poor people might not even have the money to buy enough food for the family.

And the companies won't be affected at all. This tax is for private persons only. No extra taxes for the companies.

Those 10% money are spent at this moment by the top-half of the food chain and that creates jobs for sure. But giving it to the government and then paying the financial markets to cover the debt means the money get to the financial markets and they will also spend it or they will invest it, and that also generates pretty much the same amount of jobs.

In the end, by paying the debt, the money get back into the pockets of the rich who own the financial markets so they should not be affected at all. By the contrary - they should be happy for getting their money back - plus some nice profit.

Now let's imagine another situation - say the internal debt is insignificant but the country made a huge budget deficit this year. Is it possible to cover that budget deficit (or a part of it) using such a tax?

It looks like something that might actually work but there might be some flaws in that construction, so I'm asking if it is actually possible for the govt. to do something like this.

$\begingroup$This question is way too long. It should be cut down to a paragraph.$\endgroup$
– Brian RomanchukApr 3 '19 at 19:32

$\begingroup$@Giskard - I've accepted the answers of those questions now, the remaining ones are without answers or with a single answer but not the kind of answer I can mark as accepted$\endgroup$
– Joe JobsApr 4 '19 at 2:55

1 Answer
1

The change in debt in a year is equal to the fiscal deficit (under simplifying assumptions).

So if the government can raise taxes without affecting anything else, the deficit becomes smaller, or turns into a surplus, in which case the debt falls.

The reason why this is not normally done is that raising taxes reduces growth. The exact effect of tax increases is an object of academic and political debate. If you search for “austerity policies” you ahould be able to find a lot of information.

$\begingroup$But either way, the money stays in the pockets of the rich. If they are not taxed, then they keep the money. If they are taxed, the government will collect the money and they will pay to their creditors - the rich people who own the financial markets who lent money to the government. Austerity was tested until now as spending cuts and that reduces the wages of the people working in the administration and the welfare - and that hurts the poor. It is one thing to tax the poor (and that increases poverty) and it is totally something else to tax the rich$\endgroup$
– Joe JobsApr 4 '19 at 1:14

$\begingroup$@JoeJobs "either way, the money stays in the pockets of the rich". Maybe, but that makes it harder for the rich to recover or accumulate wealth. That is why heavier taxation encourages the wealthy to move their assets to economies that are fiscally more competitive. The same happens with high-skilled professionals and entrepeneurs: they relocate to economies where the net (that is, after tax) compensation is higher. Thus, economies with heavy taxation end up getting stuck with brain drain as well as wealth drain.$\endgroup$
– Iñaki ViggersApr 10 '19 at 19:22